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International Journal of Physical Distribution & Logistics ManagementEmerald Article: Rx for smart hospital purchasing decisions: The impact ofpackage design within US hospital supply chain

Sameer Kumar, Rebecca A. DeGroot, Daewon Choe

Article information:

To cite this document: Sameer Kumar, Rebecca A. DeGroot, Daewon Choe, (2008),"Rx for smart hospital purchasing decisions: The

mpact of package design within US hospital supply chain", International Journal of Physical Distribution & Logistics Management,Vol. 38 Iss: 8 pp. 601 - 615

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VIEWPOINT

Rx for smart hospitalpurchasing decisions

The impact of package design withinUS hospital supply chain

Sameer Kumar, Rebecca A. DeGroot and Daewon ChoeOpus College of Business, University of St. Thomas,

Minneapolis, Minnesota, USA

Abstract

Purpose – The purpose of this paper is to examine the impact of packaging design on purchasingdecisions in hospitals and to identify inefficiencies in the US hospital supply chain. Recognition of inefficiencies helped to directly relate to the effects on critical factors of operation such as environment,traceability, and logistical ease which significantly add to the cost of health care.

Design/methodology/approach – A survey instrument was designed to be completed bypurchasing agents in US hospitals and clinics. Statistical analysis was then applied to the survey datato draw inferences. In addition, existing studies of best practices of supply chain and packaging designwere considered to determine what may be applied to the US hospital supply chains.

Findings – Analysis showed very little correlation between packaging requirements and hospital

supply chain design. The data from the survey also supports the supply chain literature that thehealthcare industry in the USA has been slow to adopt inventory efficient systems like just in time andlean development, including product tracking through bar coding and radio frequency identificationdevices; though most US hospitals have the capability to migrate to such a supply chain system.

Research limitations/implications – A small number of respondents were involved in the survey.Such efforts were limited by the availability of participants which were primarily supply chainprocurement staff in various large community hospitals in major metropolitan areas across the USA.

Practical implications – There is a substantial opportunity for management of hospitals to educatetheir purchasing agents on the benefits of collaborating with their suppliers in order to take theirrelationships to the next level to lower costs of the US hospital supply chain. This has been shown bythe responses in support of critical factors of the supply chain. Case studies have shown somehospitals are leading the way towards efficient use of their supply chain strategies.

Originality/value – Analysis of survey data revealed that packaging and environmental friendlysuppliers/medical products do not currently play a role in hospital purchasing decisions. Nearly, all of the community hospitals in the USA that participated in the survey do not value packaging as

providing a means to a more efficient inventory management program.Keywords Packaging, Economic sustainability, Supply chain management, Hospital management,United States of America

Paper type Viewpoint

IntroductionThe US healthcare industry, often considered to be cutting-edge; has fallen behind inthe development of an efficient supply chain design, ignoring better packaging andsupply chain design to gain cost efficiencies. This industry has been insulated from theneed to redesign their networks due to federally funded tax programs.

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0960-0035.htm

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Vol. 38 No. 8, 2008pp. 601-615

q Emerald Group Publishing Limited0960-0035

DOI 10.1108/09600030810915134

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Healthcare can no longer afford to view itself as operationally different than otherbusinesses. One way to lower costs is to restructure the supply chain, thus improvingtheir supply chain management.

These efficiencies would have a positive impact to the environment. According to anarticle published in 2000 (Messelbeck and Sutherland), the US EnvironmentalProtection Agency (EPA) named medical waste as the fourth largest contributor of mercury in the environment. They also stated that they were a major contributor of dioxin, one of the most highly toxic chemicals on earth, second only to radioactivematerials. While the pollution is certainly alarming at an estimated 3.5 million tons peryear, as early as the 1990s, 85 percent of medical waste (by weight) comes from wastethat is not considered infectious (Kaiser et al., 2001). However, waste reduction frompackaging, almost certainly leads to logistic efficiencies, as packaging becomes smallerand easier to handle (Shah, 2004).

The decisions purchasing professionals make influence inventory levels, andultimately the service provided to the consumer of the hospital or clinic, as they tend tohave control over many supplier relationships. Inefficient purchasing will eventuallybe passed along to the patient as additional costs. Thus, any advances in efficienciesmust first begin with purchasing (Parker and Anderson, 2002).

The following hypothesis comes from the research already published on this topic. Itis hypothesized that the packaging of supplies, is ignored as part of the purchasingdecision-making process within the healthcare industry. This lack creates an inefficientsupply chain design between the manufacturers, wholesalers, and consumers (hospitalsand clinics) of these goods. This apparent disconnect in industry led to the development

of collaborative packaging design, implementation of standardized tracking methods(bar codes/radio frequency identification devices (RFID)) and just in time (JIT) practices.This hypothesis will be validated by answering the following question:

What are the greatest opportunities for improvements in health care packaging/supply chaindesign?

However, in order to answer this question, several other questions must be addressed.The future is often a matter of learning from the past; therefore, we will identify howkey processes and needs that already exist work in the healthcare industry:

. What is the current role of packaging in the medical supply industry?

. Are purchasing decisions currently influenced by packaging design? If so, whataspects are considered important to the decision-maker?

. What type of collaboration, if any, exists between manufacturers and customers

of healthcare supplies?. What are the established “best practices” of other industries that could be useful

to health care manufacturers?

We will review published literature regarding packaging as part of the supply chain inhealthcare and other industries. This will illustrate the advances that have been made,and the opportunities for improvements that are already being discussed. Next, asurvey outline that was conducted of purchasing professionals within the healthcareindustry, will be provided in an attempt to answer some of the secondary questions.We also reviewed a few case studies, to supplement the survey results that reveal how

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practical application of the packaging considerations improves the efficiencies of hospitals. The survey results are presented and the inferences made leading torecommendations, limitations, and implications to management on how this researchshould be applied to the industry in order to move forward toward greater efficiency indesign and decision making for this supply chain. Finally, we will state the conclusionsand opportunities for further research in this area.

Literature reviewThe healthcare industry is the largest industry in the USA. In 2005, the healthcareexpenditures were $2.016 trillion accounting for 16 percent of gross domestic product

(GDP) with a $6,697 per capita (Centers for Medicare & Medicaid Services, 2007). Theforecasted spending for 2010 is $2.887 trillion, which represents 18 percent of the GDP(Centers for Medicare & Medicaid Services, 2007). Considering the purpose of thisstudy, the focus will be on only consumable products in the healthcare industry. Asubset of the healthcare industry is the medical products industry.

Hospital administrators are searching for ways to control spending and reduceinventories. This focus will continue as funding sources are continually reduced,combined with continued pressure from private health insurance carriers that arereluctant to cover increasing costs for members.

Unlike the grocery and retail industries, the healthcare supply chain is not wellconnected between the customer and manufacturer. One reason healthcare has been slowto adapt anystrategies like lean, JIT, and Kanbanis that havinga stock outsituation is notsafe when the health of a patient is on the line. The inventory of medical supplies must beavailable for immediate use by medical professionals. Inventory reduction may not be

feasible, however, collaboration between the hospitals and manufacturers is necessary toprovide a better system. Figure 1 shows a very basic supply chain process for thehospitals. For the purpose of this study, the focus is only on the circled area of theinteraction betweenthe manufacturer (or distributor)with the end consumer(the hospital).

Packaging The packaging of products serves two purposes:

(1) marketing/informational: the package communicates the details of the productin an appealing way; and

Figure 1.Supply chain flow in

healthcare withcollaboration

Raw

Material

Supplier

Manufacturer

3rd party

distributor

Hospital/

Clinics

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(2) logistic: the package must be able to protect the product and be easily handledfor transportation.

This paper will focus on the logistical components of packaging. The changes inpackaging can only be driven by the customers and can be considered a degree of product customization to meet customer needs (Engelseth, 2007).

Seven main factors of good packaging design include: standardization, pricing,product or package adaptability, protective level, handleability, product packability,and reusability or recyclability. In addition, storage space utilization and the ability toconvey information is also important in package design.

An example of such a usage occurs in Evergreen Hospital Medical Center where theofficials sought to prepare for bar code medication administration and improveefficiency of medication delivery to nurse servers (www.Mckesson.com, 2007). Thehospital successfully implemented the ROBOT-Rxw system, which has significantlyincreased its dispensing accuracy to 99.9 percent; has cut down 72 percent of the cartfill labor; and has realized nearly $2 million in annual savings through 24,000pharmacist-patient interventions.

Many industries are focusing packaging design efforts on sustainability inpackaging as the US Congress Office of Technology Assessment stated in 1992 thatmaterial consumption has increased by a factor of four since the turn of the century(Beamon, 1999; Jonson, 2005) and the US EPA has stated that in 1997 containers andpackaging created 71.8 million tons of waste of which 28.3 million tons was recovered.This increase in consumption and waste has been linked to the climate changes,specifically the increases in global warming due to greenhouse gases (Messelbeck and

Sutherland, 2000; Environment Report, 2008; White and Hamner, 2005). Alcan globalpharmaceutical packaging representatives report that many of their customers areclamoring for more information on this topic (Butschli, 2007). Reduction of packagingwaste leads to decreased costs for the manufacturer, as there is less material usedtherefore, less expense as well as lower transportation costs, as products take up lessspace in transit (Shah, 2003; Sonneveld et al., 2005; Vistrom, 2003).

RFID in packaging Pharmaceutical companies are using RFID to protect against counterfeit drugs.The food and drug administration (FDA) is endorsing the use of RFID on drugs to trackthe flow from manufacturer to wholesaler to customer. Pharmaceutical companies areexperimenting with implanting RFID on drug bottles to validate the authenticity of their products. Moreover, the adoption of RFID by hospitals in the US was estimated tobe 10 percent in 2005 and is expected to increase to 80 percent by 2011 (vonEschenbach,

2006). However, while RFID has taken hold in the pharmaceutical industry, there hasnot been any dramatic implementation plans on other consumable items. In fact,manufacturers have not yet implemented bar coding to standardize information totheir customers.

RoboticsAstraZeneca, for example, employs robotics on several of its packaging lines at itsplant in Sodertalje, Sweden (Butschli, 2007). High flexibility and “digital” changeoverare among the benefits that are seen with robotic packaging. They’re also ergonomic,requiring no, manual, lifting or handling of boxes. Robotic equipment can be

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economically justified in that robots are the same price as “common” machines, buthave better and more flexible functions.

Biologics packaging Biologics-based products and combination products appeal to some pharmaceuticalfirms, for their treatment potential, their financial prospects, and their ability to extendpatent protection (Butschli, 2007). The packaging of these products relates to thesensitivities of these proteins, which are also less robust than chemical molecules.These products have to be frozen or lyophylized (freeze-dried) for a shelf life that’suseful in a commercial sense. Even then, the estimated shelf life of biologics is typically12-18 months, compared to years for pharmaceutical tablets.

Just in time ( JIT)Another important issue involving packaging design relates to lean manufacturing and JIT strategies being implemented into supply chains across industries. As stated earlier, JIT strategy is difficult to implement in the healthcare industry due to the importance of patient safety. However, there have been studies performed that show that some of thesupply chain activities of hospital meet the criteria of potential JIT strategy. Thesecriteria include operations that are repetitive, high volume, and deal with tangible items(Jarret, 1998). These criteria combined with the right relationships with material andpharmaceutical suppliers mean that deliveries could be made on a JIT basis.

Three strategies were implemented in order to achieve the goals of electronichealthcare requisitioning. Goals include: 95 percent electronic transactions, 100 percent

invoice accuracy, 80 percent inventory reductions, 99 percent service level/fill rates,product stopping points, and cutting material-handling staff by 50 percent.

First, more efficient product movement was implemented, which resulted in savingsof $6.7 billion for the overall supply chain, as inventory management strategies becamemore automated. Second, by utilizing efficient order management the supply chain wasable to save $1.7 billion through better negotiation and product purchases. Third, EDIand barcode technology allowed faster transactions and fewer errors, which producedsavings of $2.6 billion. This last strategy requires the adoption of uniform productlabeling and bar coding which currently is not in place for all manufacturers (Jarret,1998; Huang et al., 2004).

Two initial operational changes need to be made before healthcare providers canimplement these JIT strategies. First, they need to form collaborative-basedpartnerships with their suppliers. Second, research needs to be done in order todetermine the capability of the health care supply chain systems currently in place to

accurately identify, categorize, and predict all products.Due to the cost savings nature of the recycling and segregation programs, hospital

purchasing agents need to identify opportunities and seek out manufacturing firmsthat share their vision of a “green” process in supplying healthcare supplies. In doingso, they initiate collaborative planning with their manufacturers, so that packagingdesign will be considered at the research and development phase of the process.Therefore, it will be fully integrated within the supply chain design of manufacturingthese products (Jarupan et al., 2004).

Manufacturing firms, such as Baxter International, Inc., have been employingenvironmental life cycle considerations into their design process since 1992.

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Bristol-Meyers-Squibb ensures new products have environmental qualities in itsefforts to minimize waste through the manufacturing, use, and disposal of theirproducts. Allergen looks at packaging considerations including weight reduction of materials, packaging level reductions, recyclable content, ease of recycling,biodegradability, and reusability when designing new packaging for their products(Messelbeck and Sutherland, 2000).

The pharmaceutical side of the healthcare industry is highly regulated regardingimpacts on the environment. The US EPA watches pharmaceutical manufacturersthrough the Clean Air Act, the Clean Water Act, the Resource Conservation andRecovery Act, the Safe Drinking Water Act, the Underground Storage Tank

regulations, the Emergency Planning and Community Right-to-Know Act, and theToxic Substances Control Act (Messelbeck and Sutherland, 2000). In addition, the FDAalso regulates the pharmaceutical industry through the Federal Food, Drug, andCosmetic Act. This act defines the regimented approval process that any newpharmaceutical must go through before being allowed on the market for consumers.

When going through the approval process, the packaging design of the productmust be defined to a detailed level; any subsequent changes of packaging after theproduct is released to the market are required to go through an approval process aswell. This provision of the act is part of the reason that pharmaceutical companies, inparticular, are reluctant to make packaging design changes on existing products, as itmeans further investments into a process that may not be approved for market.

Since this type of approval is not needed on all healthcare supplies, there are primeopportunities for manufacturers to collaborate with their consumers to determine thebest designs and systems in order to be able to service the majority of their marketswith ease and lower expenses.

Analytical frameworkIn order to gauge the influence of packaging through purchasing, the authorsconducted surveys of 75 hospitals across the US in different regions (West Coast, EastCoast, Midwest, and South) of the country. A 10-15 min telephone survey consisting of 17 questions was used to capture a broad range of current practices regarding the topicin a short span of time. The purchasing or material management department staff of the hospital was chosen for the survey, as they have a direct impact on the purchase of medical supplies. Response rate for the survey was 40 percent (30 out of 75). Largepublic/privately owned community hospitals were chosen because they purchase themost medical supplies and offer the greatest incentive for manufacturers to changetheir practices. Criteria used for selection of large community hospitals were: hospitals

with at least 250 employees (nurses, doctors, healthcare staff, etc.) and more than 100beds. In order to find hospitals, US News and World Reports Hospital Directory (www.usnews.com/usnews/health/hospitals/state_dir.php) and the American HospitalAssociation Directory (www.ahd.com) were used. Hospitals, were then randomly,chosen across the USA, in major metropolitan areas such as Seattle, San Francisco, LosAngeles, Boston, Washington (DC), Minneapolis, Atlanta, and Houston.

The survey (see Appendix) questions covered several topics including purchasingbehavior, current supply chain design, and supplier information and relationship. Thesurvey was constructed to determine a correlation between the influence of packagingand decision to purchase the product. The questions are arranged to discover a pattern

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of behavior common through the survey takers (hospitals). There are total of 17questions in the survey. In total, 13 of the 17 questions were answered on scale systemas strongly agree, agree, neutral, disagree, and strongly disagree. The remainingquestions had specific answers that the respondent could choose in order to give betterinformation to the researchers. The average time of the interviews was seven to tenminutes. Results from the survey were compiled to identify the prime opportunities toimplement efficiency in the packaging and supply chain design of the healthcaremanufacturers and consumers. Once these opportunities were identified, case studieswere utilized from other industries in order to identify the best practices that couldapply to the healthcare field.

Answers to the question regarding packaging influence on purchasing decision wereslightlyscattered.The majority of theanswersregarding thequestion, if packaging was aconsideration in the purchasing decision were on the neutral to disagree side of the chart.However, there is some significant interest in purchasing returnable totes, but very fewwho have actively sought out environmentally friendly suppliers. There are definitely asizeable number of respondents who are interested in the RFID but are unwilling toconsider the packaging as an influential factor during the purchasing decisions.

Survey results in regard to the supplier relationships revealed that mostparticipating hospitals do have electronic order capabilities. It also shows the veryclose contract relationship between hospitals and their suppliers. Moreover, there aremany respondents who have mentioned that their suppliers provide more than50 percent of the purchases. Considering this, it might be all the more easy to enforcethe importance of the packaging decisions as the purchaser has a great deal of

influence over the packaging decisions.Considering the type of supplier from which hospitals mainly purchase, it is evidentthat in addition to being under contract with many of their suppliers that they are alsoheavily using distributors rather than ordering directly from the manufacturers. Thisis partially due to the fact that the quantities they are ordering, as distributors are morelikely to break pallets and even cases when necessary to meet the needs of theircustomers.

The frequency of meetings between suppliers and hospital purchasing agents isanother factor that was considered during the survey. It is evident that most of themhave a very close relationship and are meeting on a weekly basis to discuss the needsof the hospital. This might be the crucial factor where hospitals purchasing largequantities can easily negotiate and communicate the problems and their requirementsfor packaging.

The ordering quantities most often used by hospitals and the majority of

purchasing agents are purchasing in case quantities, but there is a high occurrence of amixture between cases and individual units depending on the product. Considering thisfactor, the purchaser needs to clearly define the packaging requirements for differenttypes of units. Some individual units might not need sophisticated packaging. Someunits might and this can easily be defined from a cost effective point of view.

Much of the published literature stated that hospitals were not ready for JITimplementation, but, on the basis of their delivery schedule they are on track for a JIT type program as 80 percent of the respondents are receiving deliveries on a dailybasis. This opens up the gate for reduction of rejected products and also an efficientsupply chain monitoring base.

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The survey data in response to the study’s hypothesis, whether packaging is afactor in the purchase decision role suggests that the impact of packaging plays a smallpart in the purchase of medical products. This is further verified when a correlationanalysis is done between the questions in the survey. There is very little to nocorrelation between the answers given in regard to considerations of different types of packaging.

A moderate positive correlation, 0.468, was found between the questions regardingseeking out environmentally friendly suppliers whether or not packaging is aconsideration in purchasing. Also, a positive correlation was found between suppliersthat required bar coding or RFID and those that were interested in more

environmentally friendly suppliers (0.293). These same respondents, were alsointerested in returnable totes with a correlation factor of 0.517. This shows that thosepurchasing agents considering environmental impacts are taking packaging intoaccount during their decision process, but it is not necessarily, the most persuasivefactor in their decision.

In support of our hypothesis, a very low correlation level was seen betweeninventory concerns and consideration of packaging when making purchasingdecisions at 0.0291. This further indicates a lack of awareness of packaging whendetermining from which suppliers items are being sourced. The opportunity forpackaging to influence inventory is enormous given that all respondents agree, withover 90 percent strongly agreeing, that inventory levels are a concern to theirorganization.

The data supports the findings in the literature reviews that the healthcare industryhas been slow to adopt inventory efficient systems like JIT and lean development. Onlyone of 30 total hospitals was implementing a JIT system. In addition, authors were toldnumerous times by the respondents of the need and desire for standardization throughbar coding or RFID tagging of products for the industry. Very few respondents agreethat they required this type of tagging, but most then added, that they did not require itdue to lack of availability.

The authors learned that most hospitals have the capability to migrate to such asupply chain system. Almost half of the respondents stated that they have a weeklymeeting with suppliers to discuss their needs and two-thirds of the respondents arealready receiving daily deliveries from their suppliers. It was not surprising, given theconcerns surrounding inventory levels that most respondents order products incase quantities rather than pallets which is a move towards reducing inventory,particularly given the frequent delivery schedules.

Critical supply chain factorsThe supply chain factors that are critical in developing a supply chain were developedto find the trends in the industry practices. The primary question was “Packaging is aconsideration when determining which suppliers I purchase from”, that gives us anindication that cost cutting measures could be promoted within the healthcareindustry. Key questions were segregated to identify trends in the areas of environmental friendliness, logistics, traceability, inventory management and alsocollaboration, planning, forecasting, and replenishment (CPFR) (Table I). Some factorshave a long time perspective such as traceability, which could increase the costs duringa short period of time. In the long run, it could help in the closed loop supply chain

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structure of all products in the health care industry. This also contributes towardsenvironmental friendliness, as traceability will help monitor recycling of the products.Below is a compilation of the answers to the specific questions that help us to trace therelationship of supply chain and specific factors.

These factors show trends that 53 percent of respondents who are environmentallyconscious, out of which 37.5 percent respondents are neutral (Figure 2). The costcutting measures could be concentrated by improving the segments of logistical ease,traceability and inventory management. Unfortunately, only 47 percent of thehealthcare industry sees it as a requirement to have traceability incorporated into their

Figure 2.Bar chart describingresponses to critical

factors of the supply chain

30

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20

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Bar Chart showing the Responses of survey to the Critical Factors

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Stonglyagree Agree Neutral Disagree

Stronglydisagree

Question numbers Factors 5 4 3 2 1

4 Environment 4 6 6 9 55 Logistical ease 6 12 8 2 26 Traceability 3 4 7 6 108 Inventory management 9 5 4 5 7

CPFR 9 Forecast sharing 26 3 0 0 1

10 Planning

a

18 5 3 1 113 Collaboration (20 percent) 17 10 1 1 114 Collaboration (50 percent) 24 4 1 0 016 Collaboration (E comm) 22 6 0 0 217 Replenishmentb

Notes: aSignifies that the grading scale used was based on the proactiveness of the company which isoutlined in the responses. bSignifies that the grading scale used based on the responsiveness of thecompany to react to replenishment needs. Key question: “Packaging is a consideration when my

organization decides which supplier I puchase from” Survey Results

Table I.Survey results segregated

according to the criticalfactors of supply chain

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packages which could help in the recycling of the product. This might help in theclosed loop supply chain of a used product for recycling purposes. The other criticalfactors relating to CPFR also show how the collaborative planning and forecastingcould help in the replenishment of product.

The survey portrayed that more hospitals are beginning to think in terms of JIT,benchmarking supply chain practices which are the industry best practices as theystrongly agree with the benefits of forecast sharing, planning and collaboration. Morehospitals are becoming aware of the RFID need and tracebility to ensure better supplychains and also safer practices to ensure product recalls can take place easily and safely.

Industry best practicesBy simplifying the supply chain, it enables the relationships to be built in order toallow deliveries to be made on a JIT basis. However, JIT cannot be supported within abusiness without managerial support and good faith in the vendors (Jarret, 1998).These relationships help support the value chain model in which procurement plays akey role. The value chain and how the supply chain functions are a result of differentaspects of the organization and policies and procedures that may be in place.

The flow of communication between different levels within the organization, as wellas, between supply chain partners is extremely important in order to maintaina positive working relationship. A continuous flow of information between allmembers of the supply chain is needed in order to be able to implement efficientpackaging and supply chain design changes. This requires a team approach, and manymembers throughout the organization need to be involved in decision making early in

the process. Packaging needs to be implemented into supply chain design, as it is anintegral part of the product flow; it will directly influence how a product is handled,and provide information to all members of the supply chain (Chan et al., 2006; Dahlborgand Johnson, 2006; Engelseth, 2007). The same is true of industries that have focusedon a life cycle design which builds their framework on concepts and techniques toaddress environmental, technological, and social products, services and organizations(James, 2004; Beckman and Olsson, 2006).

An example of a supplier who is highly motivated and committed towards theenvironment is Baxter Singapore which set aside resources to form teams such as theEnvironmental Team and the Energy Conservation Team, to spearhead environmentalinitiatives. As a whole, Baxter seems to have two main ways to enforce wasteminimization which are: material minimization and plastic waste recycling. Thefollowing methods have been featured in the article which can be found at BaxterHealthcare Pte Ltd Case Study (2001).

Methods to reduce and reuse packaging material Only a few of the initiatives by Baxter towards reduction of packaging material arelisted below. A closer look at these methods would help the reader to realize theimplications of such efficient methods. These methods also featured in the surveyquestions, helping to detail the gains to both the supplier and the consumer.

Reuse of tote pans and plastic pallets. Baxter has started working with suppliers toreduce the waste produced from the corrugated boxes and wooden pallets which wereemployed for material transportation. These boxes have been replaced with reusabletote pans and the wooden pallets with plastic pallets to deliver molded parts – the pans

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and the pallets are reused between Baxter and the suppliers. The program has beenexpanded to cover about 20 suppliers including mechanical and electro-mechanicalparts suppliers. The supplier takes the empty tote pans and pallets back duringdelivery. On average, 9,000 tote pans and 1,400 plastic pallets are reused each month.

Reuse and recycle of cartons. Collection bins are placed at Baxter to collect the emptycartons of the supplier who will pick up the empty cartons from Baxter during theirnext delivery trip. The cartons are reused for supplies to Baxter. Carton waste is storedin bulk quantity, prior to their transfer to the company that deals in carton waste.Carton waste is then re-processed into recycled paper. Baxter’s carton boxes are madefrom 50 percent recycled paper.

Recycle of wooden pallets. Wooden pallets are non-returnable to suppliers. They arecollected for reuse or made into technical wood.

Pack factor optimization. Baxter Singapore redesigned the packaging required toship Colleaguee Volumetric Infusion Pumps. Now, each pallet accommodates 48pumps, compared to 18 pumps, previously. This will save 6,000 kg of polyethylenefoam, 7,000 kg of corrugated cartons, and 600 wooden pallets per year. Annual materialcost savings will be US $33,000.

Another way to implement best practices is to put into operation a benchmarkingprogram within the healthcare industry. The benchmarking cycle can be traced to theprocess flow, in the manner of an organization analyzing the processes that need to bebenchmarked, finding a partner which has already implemented this change, thenproceeding to understand and analyze their processes to identify the gaps andimplement changes.

While, many healthcare organizations in the USA may be benchmarkingthemselves against each other in some key aspects, they should also benchmarkthemselves against other industries which have found and implemented efficientprograms within their supply chain. While, not all practices identified should beimplemented in their exact form, it will be useful to identify why these practices workwell for others and potential modifications needed to implement similar benefits to thehealth care organization studying the practice (Lapide, 2005-2006; Andersen andRandmoel, 1998).

Study limitations and practical implicationsOnly 30 purchase professionals participated in the study. In order to conduct astatistically relevant study, the authors would have liked to reach 100 respondentsthroughout major metropolitan cities. The main hindrance was the availability of participants willing to take part in the surveys. Although 100 responses from survey

participants would have been ideal, the authors believe the trend of the data would nothave varied greatly from the 30 responses.

In capturing an overview perspective, the study did not collect detailed informationon specific topics. In a future study, it would be interesting to investigate whypackaging is not considered in the mix regarding the purchase decision. In addition, afurther investigation into the awareness of packaging techniques, needs of theconsumer in this industry and what stimulus is needed in order to move manufacturerstowards those improvements.

Furthermore, there is opportunity to develop a supply chain processmodel to identifythe barriers that hospitals in the USA face in moving to a JIT supply chain system.

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Most hospitals have the core components (EDI, daily shipments, and collaborativerelationship) to move to JIT, but what factors are offering the most resistance? Are theobstacles capital or resources? Also, what arethe overall cost savingsto the organizationto implement these programs, as well as, any savings or investments that need to bemade by the manufacturers and distributors of these products.

Packaging plays an increasingly important role in making products safer and costeffective in the reduction of inventory levels and waste. Managers must reconcile thesetwo trains of thoughts into a single decision-making methodology.

One way of improving the US hospital’s supply chain is through training thepurchasing staff, to increase awareness of the current trends in packaging and

environmental impacts as well as the cost savings and efficiencies where they canbenefit. They also need to look at the waste disposal costs of container packaging,opportunities for improvements by leveraging their relationships with manufacturers,and recommend using recyclable and waste reduction parts in medical products toreduce costs across the entire supply chain.

Contrary to much of the literature, the survey results suggest many hospitals are ina position to move to a JIT supply chain system. First, about half of the US hospitalswho participated in the survey meet with their primary suppliers on a weekly basis.This suggests that significant number of hospitals surveyed already have arelationship with suppliers and could bring those relationships to the next level. It isimportant that both parties agree to the new system, since the hospitals are in aposition to leverage their relationship to JIT. Second, nearly all of the US hospitalssurveyed generate electronic purchase orders via EDI. Third, most hospitals surveyed,receive daily shipments.

Similar to the retail and grocery industries, the healthcare industry not only canbenefit from modernizing their supply chain in order to reduce costs, but they are veryinterested in doing so. If the biggest obstacle to change is a fear of stockout situation,then they need to tailor JIT or Lean Development to their business needs. The newsystems are not a one size fits all, but require customization. A supply chain managerat a hospital should look at examining the cost/benefit of moving their current systemto a JIT system. The study also showed tremendous opportunity for medical suppliesmanufacturers to develop standardization of information in their packaging for theircustomers and distributors. The number of respondents who stated they would like torequire bar coding or RFID, but could not, due to lack of availability, wasoverwhelming. It appears that consumers are ready to make the investments on theirside to utilize this information, but must convince the manufacturers to do so.

ConclusionsThe authors discerned from the survey of various US hospitals and their supply chainenvironment, which was complemented with case reviews, that packaging andenvironment friendly suppliers and medical products do not currently play a role inpurchase decisions. Nearly, all of the hospitals in the US that participated in the surveydo not value packaging as providing a means to a more efficient inventorymanagement program. However, these programs can help to reduce the $1 million onwaste disposal that hospitals spend each year. This can clearly be seen from thetraceability matrix that shows that many respondents have yet to launch into thesupply chain designs for low cost. It has effectively been shown that the opportunities

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for improvement in the packaging industry, engaged in supply of products to thehealth care industry, require not only CPFR, but an environmentally consciousapproach for long-term cost effective means to design their supply chains.

In completing this study, different ways were discovered to reduce costs byrevamping the supply chain. Hospitals in the USA have numerous opportunities toimprove their supply chain to become more efficient and cost effective throughcollaboration with their suppliers to design better packaging and systems. In addition,hospitals already have many of the components and infrastructure needed to move to a JIT environment. Quoting Pilchik (2004, p. 16), who says that only a few moreoperational steps are needed to complete the transition to one set of rules governing

medical device packages, it is just a bold move that is required from the steps of thisrevolution. This move will reduce the inventory and the total cost of ownership.A major obstacle preventing hospitals in the USA from moving towards betterpackaging and supply chain design is a change agent, there is currently no main driverfor the change.

A more detailed analysis of the packaging supply chain for hospitals can beconducted by expanding the scope of the survey instrument, including demographicsof the purchasing agents and also including more participating hospital supply chainsacross various regions of the USA.

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Appendix. Packaging/supply chain design survey for purchasing professionals inhealthcareTitle of person completing survey___

Please rate on the following scales unless otherwise notated:

1 – Strongly disagree

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2 – Disagree

3 – Neutral

4 – Agree

5 – Strongly agree

(1) I am able to determine who my organization purchases supplies from.

(2) I purchase all types of supplies including pharmaceutical products.

(3) Packaging is a consideration when determining which suppliers I purchase from.

(4) I actively seek out or have been asked to seek out suppliers that utilizeenvironmentally friendly packaging and processes (recycling, waste reduction, etc.)

(5) I would purchase products in returnable totes if available.

(6) I require bar coding or radio frequency device indicators on packaging in order totrace products.

(7) I order customized packaging of supplies for my organization.

(8) Inventory levels are a concern to my organization.

(9) I or someone within our organization supplies a forecasted need to our suppliers.

(10) I meet with my suppliers to discuss our organizational needs:a. Weekly b. Monthly c. Quarterly d. Annually e. Less than 1 £ /year

I purchase most supplies from:a. Manufacturers b. Wholesale suppliers

(11) I order products from domestic as well as international suppliers.

(12) 20 percent of our suppliers deliver 80 percent of our needs.

(13) I am under contract with suppliers who supply over 50 percent of our supplies.I normally order the following type of quantities:a. Pallets b. Cases c. Individual units

(14) I am able to transmit data regarding purchase orders electronically.

I receive deliveries on the following schedule:a. Daily b. Weekly c. Monthly d. Less frequent than monthly

Any additional comments.

Corresponding authorSameer Kumar can be contacted at: [email protected]

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